GRAINS-Dryness drives wheat to biggest weekly gain in 16 years
(New throughout, updates U.S. market activity to close, adds fund totals, analyst comment)
* Dry weather in U.S. Plains, Russia, Australia
* Soybeans fall on profit-taking
* Corn gains on wheat's strength
By Rod Nickel and Michael Hirtzer
WINNIPEG, Manitoba/CHICAGO, May 18 (Reuters) - U.S. wheat surged on Friday to post its biggest weekly gain in 16 years, adding about 17 percent to prices and notching an eight-month high as hot and dry weather stoked fears about production losses in the U.S. Plains and Russia.
Corn climbed to the highest level in a weak on wheat's coattails while soybeans shed 2 percent after three straight sessions of gains.
The promise of a bumper U.S. hard red winter wheat crop was eroding by the hour as scorching temperatures and high winds in important growing areas of the U.S. Plains sapped soils of needed moisture, wheat experts said.
The dry weather has caused speculators to cover short positions, fueling wheat's gains this week.
"Wheat is a weather market right now, and I think corn is just going along for the ride," said Jack Scoville, analyst for brokers TPFG in Chicago. "There's dry weather here, there's dry weather in Russia, and that's really floating the boat."
Chicago Board of Trade July wheat jumped 37-1/2 cents, or 5.7 percent, to close at $6.95-1/2 a bushel, the highest price since September 2011 for a nearby contract.
July wheat's weekly gain was the biggest since April 1996 for a nearby contract on a continuous chart.
Dry weather in Russia's key southern grain export regions may have inflicted irreversible damage on some of the crop, and Australia is also experiencing a bout of dryness.
Still, with winter wheat nearing maturity, the rally looks overdone, said Rich Nelson, analyst at Allendale Inc.
"We're damaging the last fill stage of wheat right now, we're not damaging wheat in its initial stages," he said. "So this is only taking a little cream off the top, this is not chopping the crop in half."
Weather models show no significant rain for the next week in the U.S. Plains and Russia, Nelson said, but a selloff may be in the offing if any additional rain enters the picture.
Some light showers, of 1/2 inch of rain, looked to reach eastern parts of Kansas and Oklahoma during the weekend, said John Dee, meteorologist for Global Weather Monitoring.
Corn posted its third weekly gain in four weeks, on Friday added 10-1/2 cents, or 1.7 percent, to $6.35-1/2 a bushel.
Wheat's strength bolstered corn, as both are used to feed livestock.
Favorable weather in the U.S. Midwest continued to boost the outlook for this year's American corn crop, with planting nearly complete. The conditions were also largely favorable to soybeans.
"This has been a fantastic week for soybean seeding, as skies have been clear and temperatures have been warming, and the trade will be looking for bean seeding to come in just shy of the halfway mark on Monday," ABN Amro analyst Charlie Sernatinger said in a note to clients.
July soybeans slipped 33 cents, or 2.2 percent, to $14.05 a bushel on profit-taking, but posted the first weekly gain in three weeks.
Investment funds were said to have bought 11,000 corn contracts and 10,000 wheat contracts and sold 7,000 soybean contracts. (Reporting by Rod Nickel in Winnipeg, Manitoba, Michael Hirtzer and Mark Weinraub in Chicago; additional reporting by Colin Packham in Sydney and Svetlana Kovalyova in Milan; editing by Jim Marshall and David Gregorio)
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